Forex Strategies
More and more people are looking towards the forex market as an alternative to stock market for making some quick cash. While success can be lucrative in the forex market, it is only possible if a forex trader has a good understanding of different strategies that can be used to decide which currency pair to buy or sell at a particular point of time. There is no comprehensive forex trading insider techniques manual that amateur forex traders can consult and most strategies have become popular through trial and error methods. However, the base for all these strategies is Fundamental Analysis and Technical Analysis.
Fundamental analysis involves analyzing macroeconomic indicators such as the country’s economy and growth through economic reports and political situations. Technical analysis involves monitoring historical and current price movements to predict future price activity. Common methods used to study price patterns are Fibonacci, Elliott Waves, Bollinger Bands, MACD and Stochastics.
Forex traders who use the trend-following strategy use a combination of fundamental analysis and technical analysis. Fundamental analysis indicates the potential of a trend to continue while technical analysis provides information on how the trend is actually developing thus letting the traders decide when to make an entry or exit.
Following are some of the strategies used by forex traders
Forex Scalping – This involves opening and closing one’s trading positions within a very short duration of time –three to five minutes. There is very little risk of exposure.
Support and resistance – This involves monitoring the levels below or beyond which the currency price does not move. General guideline is to trade above the currency’s support level and below its resistance level.
Carry trade – In this strategy, the forex trader sells currency with low interest rates and buys currency with high interest rates. This is especially useful when the trader has a high leverage.
Breakout Trading – This approach involves using candlestick charts to analyze when a currency price will remain stable at a certain level within a particular narrow range. It is assumed that when the currency will break that range, a good breakout may happen.
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